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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No.: 0-24947
UCBH HOLDINGS, INC.
(exact name of registrant as specified in its charter)
DELAWARE 94-3072450
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 Van Ness Avenue, San Francisco, California 94102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 928-0700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, i.e., persons other than directors and executive officers, of
the registrant is $174,219,000 and is based upon the last sales price as quoted
on The Nasdaq Stock Market for March 10, 2000.
As of March 10, 2000, the Registrant had 9,333,333 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1999, are incorporated by reference into Part II of this Form 10-K.
Portions of the Proxy Statement for the April 27, 2000 Annual Meeting
of Stockholders are incorporated by reference into Part III of this Form 10-K.
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Form 10-K
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Part I Item 1. Business...............................................................................1
Our Market Area........................................................................1
Our Current Banking Services...........................................................1
Our Lending Activities.................................................................2
Deposits...............................................................................5
Competition............................................................................5
Our Historical Operations..............................................................6
Supervision and Regulation.............................................................7
Employees..............................................................................9
Additional Item. Executive Officers of the Registrant................................10
Item 2. Properties............................................................................10
Item 3. Legal Proceedings.....................................................................10
Item 4. Submission of Matters to a Vote of Security Holders...................................11
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Part II Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...........................................................11
Item 6. Selected Financial Data...............................................................11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................11
Item 8. Financial Statements and Supplementary Data...........................................11
Item 9. Changes in and Disagreements with Independent Accountants
on Accounting and Financial Disclosure................................................11
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Part III Item 10. Directors and Executive Officers of the Registrant....................................12
Item 11. Executive Compensation................................................................12
Item 12. Security Ownership of Certain Beneficial Owners and Management........................12
Item 13. Certain Relationships and Related Transactions........................................12
Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................13
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Signatures.......................................................................................................14
i
Item 1. Business
The Form 10-K contains statements about the future that may or may not
materialize. When we use words like "anticipate," "believe," "estimate," "may,"
"intend," or "expect," we are speculating about what will happen in the future.
The outcome may be materially different from our speculations. We believe that
certain factors identified elsewhere in this Form 10-K could cause a different
outcome. There may also be other factors that could cause a different outcome.
UCBH Holdings, Inc. (the "Company", "we", "us," or "our") is a Delaware
corporation that is registered with the Federal Reserve Board as a bank holding
company. We conduct our principal business through our wholly-owned banking
subsidiary, United Commercial Bank (the "Bank"), which makes up almost all of
our consolidated assets and revenues. United Commercial Bank is a California
state-chartered commercial bank.
Our Market Area
We concentrate on marketing our services in the San Francisco Bay area
(which includes the City of Oakland), the Sacramento/Stockton metropolitan area,
and the Los Angeles metropolitan area, focusing on the areas with a high
concentration of ethnic Chinese. The ethnic Chinese markets within our primary
market area recently have grown rapidly. Using the 1998 Census update, we
believe there were an estimated 3.9 million Asian and Pacific Islanders living
in California. Based on 1995 and 1996 demographic data, we believe there were
approximately 250,000 Asian and Pacific Islanders living in San Francisco
County, which is approximately 32% of the total population of the county.
We currently have 27 branches in the State of California. During 1998,
we opened a commercial banking and construction lending regional office in
Pasadena, California, to help us take advantage of opportunities in the Los
Angeles area, especially in the ethnic Chinese areas. We have tailored our
products and services to meet the financial needs of these growing Asian and
ethnic Chinese communities. We believe that this approach, together with the
relationships of our management and Board of Directors with the Asian and ethnic
Chinese communities, provides us with an advantage in competing for customers in
our market area. We are the largest financial institution focused on serving the
ethnic Chinese community within the United States.
Our Current Banking Services
Through our branch network, we provide a wide range of personal and
commercial banking services to small and medium-sized businesses, business
executives, professionals and other individuals. We offer multilingual services
to all of our customers in English, Cantonese and Mandarin.
We offer the following deposit products:
o Business checking, saving accounts and money market accounts
o Personal checking, saving accounts and money market accounts
o Time deposits (certificates of deposit)
o Individual Retirement Accounts (IRAs)
We offer a full complement of loans, including the following types of
loans:
o Commercial real estate loans (residential and nonresidential)
o Construction loans to small and medium-sized developers for
construction of single family homes, multifamily and commercial
properties
o Commercial, accounts receivable and inventory loans to small and
medium-size businesses with annual revenues generally ranging
from $500,000 to $20.0 million
o Short-term trade finance facilities for terms of less than one
year to U.S. importers, exporters and manufacturers
o Loans guaranteed by the Small Business Administration ("SBA")
o Residential real estate loans
Our commercial borrowers are engaged in a wide variety of
manufacturing, wholesale trade and service businesses.
Page 1
We also provide a wide range of specialized services, including
international trade services for business clients, MasterCard and Visa merchant
deposit services, and cash management services.
Our Lending Activities
Underwriting and Credit Administration. Our Board of Directors has
established basic lending policies. Our policies require that loans meet minimum
underwriting criteria. The Board has granted limited loan approval authority to
certain officers of the Bank. The Board requires that the collateral for all
real estate loans be valued by an independent outside real estate appraiser. Any
loan requests over individual officer limits must be approved by the President.
Our Credit Review Committee, composed of Jonathan H. Downing (Senior Vice
President, Chief Financial Officer and Treasurer), William T. Goldrick (Senior
Vice President and Chief Credit Officer), Sylvia Loh (Senior Vice President and
Director of Commercial Banking), and Thomas S. Wu (President and Chief Executive
Officer) reviews and ratifies all loans over $750,000. Loans of over $2.0
million are reviewed and ratified by the Board of Directors.
As part of our credit administration process, we conduct an internal
asset credit quality review. Additionally, an outside credit review agency,
composed of former bank executives and regulators, reviews all commercial loans
over $100,000. Our President, Chief Credit Officer, and Chief Financial Officer
meet every two weeks to review delinquencies, nonperforming assets, classified
assets and other relevant information to evaluate credit risk within our loan
portfolio. The results are reviewed by the Board of Directors quarterly.
Loan Portfolio. At December 31, 1999, our loan portfolio was made up of
the following loans:
Commercial real estate loans....................... $ 435.1 million 26% of gross loans
Multifamily mortgage loans......................... 423.8 million 25 of gross loans
Construction loans................................. 89.7 million 5 of gross loans
Commercial business loans.......................... 59.3 million 4 of gross loans
Residential mortgage (one to four family) loans.... 665.9 million 39 of gross loans
Other consumer loans............................... 14.3 million 1 of gross loans
-------- ---
Total.............................................. $1,688.1 million 100% of gross loans
======== ===
Our Commercial Lending - General. Our Commercial Banking Division is
staffed with experienced commercial lending officers. We also installed software
to help identify, market, and develop commercial real estate lending
opportunities in our market area. Below is a description of the types of
commercial loans we offer.
Commercial Real Estate (Nonresidential) Mortgages. We originate medium-term
commercial real estate loans that are secured by commercial or industrial
buildings. These properties are either used by their owners for business
purposes (known as owner-user properties) or have income derived from tenants
(known as investment properties).
We solicit borrowers in the following ways:
o Through referrals from our branch offices
o Through direct solicitation of borrowers and real estate brokers
by our commercial lending officers
o Through analysis provided by our database software system, which
provides key information on substantially all commercial real
estate loans in our primary market area
o Through referrals from existing customers
At December 31, 1999, we had approximately 458 commercial real estate
loans with a total aggregate balance of $435.1 million. The average balance of
these loans was $950,000.
Page 2
During the year ended December 31, 1999, we originated $255.5 million
of commercial real estate loans, as compared to $129.8 million for 1998, and
$23.7 million for 1997. At December 31, 1999, we had $104.1 million of
commercial real estate loans in our pipeline. However, we cannot guarantee that
all the loans in the pipeline will close.
Commercial real estate loans are generally larger and involve more risk
than residential mortgages. Payments on commercial real estate loans are
generally dependent on the successful operation or management of the properties.
Therefore, repayment is more closely tied to the state of the real estate market
and the general economy. We attempt to reduce these risks through our stringent
underwriting standards. Also, during 1998, we hired an outside loan review firm
to help us conduct our internal asset review of our commercial loans, including
our commercial real estate loans. This outside firm is comprised of former bank
regulators with extensive credit evaluation experience.
Multifamily Mortgages. We originate multifamily mortgage loans which
are generally secured by five to 50-unit residential buildings. Substantially
all of our multifamily mortgage loans are secured by property located in our
primary market area. We obtain full credit information on multifamily mortgage
borrowers and independently verify their income and assets. We also consider
their ability to manage the multifamily property and to assume responsibility
for the debt if there are unforeseen expenses or vacancies. We offer both
fixed-rate and adjustable-rate multifamily mortgage loans. Our adjustable-rate
multifamily loans are fixed for six months and then adjust every six months
based upon the LIBOR index. Multifamily loans are generally amortized over 30
years with balloon payments in 10 or 15 years.
At December 31, 1999, we had approximately 1,065 multifamily mortgage
loans with an aggregate outstanding principal balance of $423.8 million. The
average balance of such a loan was $398,000. To avoid an overconcentration of
these loans, we limit our total multifamily mortgage loans to not more than 35%
of our total loans. At December 31, 1999, multifamily loans were 25.1% of our
total loans. In 1998, we began to reemphasize the origination of multifamily
mortgage loans, and originated $135.4 million of multifamily during 1999, as
compared to $54.5 million in 1998, and $7.5 million in 1997. All new
originations are fixed-rate or adjustable-rate loans tied to the LIBOR index.
Construction Loans. We originate construction loans primarily for the
construction of entry-level and first-time move-up housing within California and
also for multifamily and commercial properties. We make these loans to
experienced builders and developers with whom we have relationships in our
primary market area. As of December 31, 1999, we had approximately 117
outstanding construction loans, with an aggregate principal balance of $89.7
million. The average balance of such loans was $767,000. Construction
commitments were $174.5 million in 1999, $127.3 million in 1998 and $59.6
million in 1997.
We generally originate construction loans in amounts up to 75% of
either the appraised value of the property, as improved, or the sales price,
whichever is lower. The funds are disbursed on a percentage of completion basis
or as construction thresholds are met. We normally require the guarantee of
principals of corporate or partnership borrowers. Construction loans have
adjustable interest rates tied to the prime rate. Construction loans are
generally prime based and are written for a one-year term and may have up to a
one-year renewal option.
Construction financing generally has a higher degree of credit risk
than does long-term loans on improved, owner-occupied real estate. The risk is
dependent largely on the value of the property when completed as compared to the
estimated cost, including interest, of building it. If the estimated value is
inaccurate, we may have a completed project with a value too low to assure full
repayment of the loan.
Commercial Business Loans. We provide commercial business loans to
customers for working capital purposes for accounts receivable and inventory and
loans to finance equipment, accounts receivable and inventory. Working capital
loans are subject to annual review, and are generally made against security
interests in inventory and accounts receivable. Equipment loans have terms of up
to five years, and are secured by the underlying equipment. Interest rates are
normally based on the prime rate.
During 1999, we originated $73.2 million of commercial loans, as
compared to $52.3 million in 1998, and $28.6 million in 1997.
Page 3
Unlike residential mortgage (one to four family) loans, which generally
are made based on the borrower's ability to make payments from his or her
employment or other income, and which are secured by real estate, for which a
value can more easily determined, commercial business loans involve more risk
because repayment is substantially dependent on the cash flow of the borrower's
business. Also, any collateral securing the loan may depreciate, may be
difficult to value and may fluctuate in value depending on the success of the
business.
Commercial Lines of Credit. We provide commercial lines of credit to
small- and medium-sized companies to finance their accounts receivable and
inventory on a short-term basis (less than one year) and/or to finance their
equipment and working capital on a long-term basis (over one year).
We structure our short-term financing to allow the borrower to complete
its trade cycle from the purchase of inventory to collection of receivables. The
line of credit may also include an option for the issuance of letters of credit
to overseas suppliers/sellers to permit the borrower to obtain inventory.
We also originate and fund loans that qualify for guaranty issued by
the Small Business Administration. The SBA currently normally guarantees from
75% to 80% of the principal and accrued interest of such loans. We make these
loans to eligible small businesses to finance working capital, the purchase of
equipment or the purchase of real estate. Depending on the purpose of the loan,
terms generally range from seven to 25 years. We typically require that SBA
loans be secured by inventories and receivable or by real property generally if
commercial real estate is being financed.
During 1999, we originated $18.1 million of SBA loans, as compared to
$11.6 million in 1998 and $3.3 million in 1997. SBA loans are generally prime
based.
Our Consumer Lending - General. We make consumer loans, primarily
residential mortgage (one to four family) loans for our customers. We also
provide home equity loans.
Residential Mortgages (One to Four Family). In conjunction with our
transition from a thrift to a commercial bank, we have placed more emphasis on
the origination of commercial loans and reduced our emphasis on the origination
of consumer loans. The majority of our consumer loan originations are
residential mortgage (one to four family) loans. We originated $59.6 million of
residential mortgage (one to four family) loans in 1999, $303.8 million in 1998
and $274.8 million in 1997. We offer fixed-rate and adjustable-rate loans,
including intermediate fixed-rate mortgages. Intermediate fixed-rate mortgages
have fixed interest rates for three or five years and then adjust annually
afterward. Our fixed-rate loans have terms of 15 or 30 year and have due-on-sale
clauses, which allow us to declare the loan immediately due and payable if the
loan is assumed without our consent.
We also offer ARM loans, with interest rates fixed for six months and
which then adjust every six months. Our intermediate fixed-rate loans have
interest rates that are fixed for three or five years, and then adjust annually.
Our ARM loans generally have periodic (not more than 2%) and lifetime (not more
than 6%) caps on the interest or decrease in interest rates. Our current
production of ARM loans are tied to the one-year U.S. Treasury CMT Index.
We originate fully-documented loans, with income and assets being
verified by third parties, and limited documentation loans, where we rely on the
borrower's representations as to income and assets for which we assess the
reasonableness of the customers' representations through independent telephone
inquiries and review of alternative written documentation. We specialize in
these limited documentation loans to borrowers who want quicker loan processing
in return for a higher interest rate and a larger down payment. As of December
31, 1999, $497.7 million, or 74.7% of our residential mortgage (one to four
family) loans were limited documentation loans. Since we began making these
limited documentation loans, we have not had any net charge-offs on any of these
loans. We cannot guarantee that these loans will continue to have such low
delinquencies in the future.
We originate residential mortgage (one to four family) loans for portfolio
retention and underwrite loans to our specific guidelines. Our guidelines differ
from FannieMae and/or FreddieMac guidelines with respect to factors, such as,
for example, loan amounts and the specific documentation required. As a result,
we cannot sell these loans to FannieMae and/or FreddieMac. We have sold some of
these loans in the secondary market to test the market acceptance of them. Based
on these tests, we believe the residential mortgage (one to four family) loans
in our portfolio could be readily sold in the secondary market should we decide
Page 4
to do so. However, there can be no assurance that such loans can be sold in the
secondary market in the future.
At December 31, 1999, we had approximately 4,079 residential mortgage
(one to four family) loans, totaling $665.9 million. At that date, the balance
of an average residential mortgage (one to four family) loan in our portfolio
was approximately $163,000. Of our residential mortgage (one to four family)
loans as of December 31, 1999, $362.8 million, or 54.5%, were fixed-rate loans,
$135.4 million, or 20.3 %, were ARMs adjusting in one year or less, and $167.7
million, or 25.2 %, were intermediate fixed-rate loans.
Home Equity and Other Consumer Loans. We also make consumer loans,
almost all of which are home equity lines of credit secured by residential real
estate. These lines generally consist of floating rate loans tied to the prime
rate.
Deposits
Our depositors are primarily ethnic Chinese households, small and
medium-sized businesses owned by ethnic Chinese, and ethnic Chinese business
executives, professionals and other individuals. We offer a range of deposit
products that are traditionally provided by commercial banks. For
interest-bearing deposits, the interest rates we pay vary depending on the size,
term and type of deposit. We set our interest rates based on our need for funds
and market competition. As of December 31, 1999, less than 2% of our deposits
were held by customers located outside of the United States. Additionally, the
100 depositors with the largest aggregate account balances held less than 15% of
our total deposits. As of December 31, 1999, our weighted average cost of
deposits was 3.80%.
Competition
The banking and financial services industry in California generally,
and in our market area specifically, is highly competitive. The industry has
become increasingly competitive recently due in part to changes in regulation,
changes in technology and product delivery systems, and the consolidation of the
industry. We compete for loans, deposits and customers with the following types
of institutions:
o Commercial banks
o Savings and loan associations
o Securities and brokerage companies
o Mortgage companies
o Insurance companies
o Finance companies
o Money market funds
o Credit unions
o Other nonbank financial service providers
Many of these competitors are much larger in total assets and
capitalization, have greater access to capital markets and offer a broader array
of financial services than we do. To compete with these other financial services
providers, we rely on local promotional activities, personal relationships
established by our officers, directors and bilingual employees with customers,
and specialized services tailored to meet our customers' needs.
We compete for deposits in the ethnic Chinese markets with other banks
that serve the Asian community in California. We believe we have three major
competitors targeting the ethnic Chinese market in California. These competitors
have branch locations in many of the same neighborhoods as we do, provide
similar loan, savings and financial services, and market their services in
similar Asian publications and media in California.
Page 5
Our Historical Operations
Up until our change in business strategy in 1996, our operations
consisted of traditional thrift activities of originating residential mortgage
(one to four family) loans which we pooled and sold in the secondary market
while servicing loans for FannieMae, FreddieMac and GinnieMae, as well as for
private investors. We also originated multifamily mortgages and commercial real
estate mortgages which we kept in our portfolio.
As a result of increased competition in the mortgage banking business,
profit margins contracted and loan servicing rights declined in value, due in
part to higher levels of prepayments. As a result, we closed our mortgage
banking division, stopped originating mortgage loans for sale in the secondary
market, and sold our agency loan servicing portfolio.
Our Board of Directors decided to shift our business focus from that of
a traditional thrift to a full-service commercial bank. They saw opportunities
to further improve our long-term prospects, in part by taking advantage of our
significant market share and our cross selling opportunities to the ethnic
Chinese and Asian communities in our market area.
We realigned responsibilities among senior management, and hired new
officers who have experience in commercial banking and in Small Business
Administration lending within our market area. In January 1998, Thomas S. Wu was
appointed the President and Chief Executive Officer of the Bank and assumed the
responsibility of successfully shifting our business focus to commercial banking
services and products. Mr. Wu has over 20 years of diversified domestic and
international commercial banking experience. Sylvia Loh was appointed head of
the newly established Commercial Banking Division in January 1996. She also has
over 20 years of Commercial banking and trade finance experience with major
financial institutions. In January 1997, William T. Goldrick was recruited and
appointed Senior Vice President and Chief Credit Officer to establish commercial
lending policies and procedures and to strengthen our credit evaluation. He has
over 40 years of commercial banking experience. He is also responsible for our
regulatory compliance.
In 1996, we established a Commercial Banking Division to offer an array
of commercial bank services and products mainly to our customers in ethnic
Chinese communities. Since its establishment, we originated approximately $608.6
million in commercial loan commitments. To support our commercial banking
activities, we implemented a commercial banking data processing system that
replaced our previous system that was designed for thrift institutions. The
installation was completed in February 1998. We also opened a commercial,
construction and Small Business Administration lending office in Pasadena,
California, in the second quarter of 1998. We hired a team of commercial loan
officers with extensive commercial lending experience and a group of three SBA
banking officers, all previously affiliated with one of the leading lenders
focusing on SBA lending to Asians, to staff the new office. Additionally, we
transferred the lead managers of construction lending to the Pasadena office to
cultivate new construction lending relationships in southern California.
In January 1998, the Bank changed its name to United Commercial Bank
from United Savings Bank, F.S.B., to reflect our new focus on commercial
banking. On July 31, 1998, the Bank converted from a federal thrift to a
California-chartered commercial bank, and UCBH Holdings, Inc. became a bank
holding company. The California Department of Financial Institutions now
regulates the Bank, with the FDIC providing secondary regulation, and the
Federal Reserve Bank of San Francisco regulates the Company.
We are working to expand our presence in the Asian and ethnic Chinese
markets through our multilingual ATMs, and through our multilingual telephone
banking system and customer service and loan officers. We have established
mini-branches in or adjacent to Asian supermarkets in selected areas as another
means of increasing our market share and deposit base.
At December 31, 1997, our stockholders' equity was $62.6 million or
4.0% of total assets. As a result of the capital raised in April 1998 and the
retention of earnings, our stockholders' equity increased to $110.1 million by
December 31, 1999, and our consolidated Tier I capital increased from $63.9
million at December 31, 1997 to $153.3 million at December 31, 1999.
We believe that these measures positioned us to take advantage of the
opportunities that are presented in our market area, and help us to better serve
the growing ethnic Chinese market in California.
Page 6
Supervision and Regulation
Introduction
Both UCBH Holdings, Inc., as a bank holding company, and United
Commercial Bank, as a commercial bank, are extensively regulated under both
federal and state law. The following is a summary of certain laws and
regulations that govern the activities of the Company and the Bank. This summary
is not a complete description of the regulations that pertain to the Company and
the Bank, and is qualified in its entirety by reference to the actual laws and
regulations.
Regulation of Bank Holding Companies
The Company is a bank holding company registered with the Federal
Reserve and is subject to the Bank Holding Company Act of 1956, as amended, and
the regulations of the Federal Reserve. The Company files quarterly and annual
reports with the Federal Reserve, as well as any other information that the
Federal Reserve may require under the Bank Holding Company Act. The Federal
Reserve examines the Company, and its non-bank subsidiary. The Company is also a
bank holding company under California law, and is examined by the California
Department of Financial Institutions.
The Federal Reserve has the authority to require that the Company stop
an activity, whether conducted itself or through a subsidiary or affiliate, if
the Federal Reserve believes that the activity poses a significant risk to the
financial safety, soundness or stability of the Bank. The Federal Reserve can
also regulate provisions of certain debt of bank holding companies, including
imposing ceilings on interest rates and requiring reserves on such debt. In
certain cases, the Company will have to file written notice and obtain approval
from the Federal Reserve before repurchasing or redeeming its equity securities.
Additionally, the Federal Reserve imposes capital requirements on the Company as
a bank holding company.
Regulation of the Bank
Bank Regulators. The Bank is a California state-chartered commercial
bank, and is supervised, examined and regulated by the Commissioner of the
California Department of Financial Institutions (the "Commission"), as well as
by the FDIC. Either of these regulators may take remedial action if it
determines that financial condition, capital resources, asset quality, earnings
prospects, management, or liquidity aspects of the Bank's operations are
unsatisfactory. Either of these agencies may also take action if the Bank or its
management is violating or has violated any law or regulation. No regulator has
taken any such actions against the Bank in the past.
Safety and Soundness Standards. The FDIC and the Federal Reserve have
adopted final guidelines that establish standards for safety and soundness of
banks. They are designed to identify potential safety and soundness problems and
ensure that banks address those concerns before they pose a risk to the deposit
insurance fund.
If the FDIC or the Federal Reserve determines that an institution fails
to meet any of these standards, the agency can require the institution to
prepare and submit a plan to come into compliance. If the agency determines that
the plan is unacceptable or is not implemented, the agency must, by order,
require the institution to correct the deficiency.
The FDIC and the Federal Reserve also have safety and soundness
regulations and accompanying guidelines on asset quality and earnings standards.
The guidelines provide six standards for establishing and maintaining a system
to identify problem assets and prevent those assets from deteriorating.
The guidelines also provide standards for evaluating and monitoring
earnings and for ensuring that earnings are sufficient to maintain adequate
capital and reserves. If an institution fails to comply with a safety and
soundness standard, the agency may require the institution to submit and
implement an acceptable compliance plan, or face enforcement action.
Capital Requirements. The Bank is subject to the risk-based capital
guidelines of the FDIC. These guidelines provide a framework that is more
sensitive to differences in risk between banking institutions. The amount of
regulatory capital the Bank is required to have is dependent on the
risk-weighting of its assets. The ratio of its regulatory capital to its
Page 7
risk-weighted assets is called its "risk-based capital ratio." Assets and
certain off-balance sheet items are allocated to four categories based on the
risk inherent in the asset, and are weighted from 0% to 100%. The higher the
category, the more risk the Bank is subject to and thus more capital that is
required.
The guidelines divide a bank's capital into two tiers. The first tier
(known as "Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock, and minority interests in equity
accounts of consolidated subsidiaries. Goodwill and other intangible assets
(except for mortgage servicing rights and purchased credit card relationship,
subject to certain limitations) are subtracted from Tier I capital.
Supplementary ("Tier II") capital includes, among other items,
cumulative perpetual and long-term limited-life preferred stock, mandatory
convertible securities, certain hybrid capital instruments, term subordinated
debt, the allowance for loan losses (subject to certain limitations). Certain
items are required to be deducted from Tier II capital. Banks must maintain a
total risk-based capital ratio of 8%, of which at least 4% must be Tier I
capital.
In addition, the FDIC has regulations prescribing a minimum Tier I
leverage ratio (Tier I capital to total adjusted assets, as specified in the
regulations). These regulations require that banks that meet certain criteria
(including having the highest examination rating and not experiencing or
expecting significant growth) maintain a minimum Tier I leverage ratio of 3%.
Effective April 1, 1999, all other banks must have a Tier I leverage ratio of
4%. The FDIC may impose higher limits on individual institutions when particular
circumstances exist. If a bank is experiencing or anticipating significant
growth, the FDIC may expect it to have capital ratios well above the minimum. At
December 31, 1999, the Bank's tangible and core capital ratios were 6.58%, and
its risk-based capital ratio was 11.29%.
In 1995, the FDIC, along with the other federal banking agencies,
adopted a regulation that provided that the agencies will consider the bank's
exposure to interest rate risk in assessing a bank's capital adequacy. They will
consider the quality of the bank's interest rate risk management process, the
overall financial condition of the bank and the level of other risks the bank is
exposed to. They may require an institution with a high level of interest rate
risk to hold additional capital. The agencies also have issued a joint policy
statement providing guidelines on interest rate risk management, including a
discussion of the factors the agency will consider in evaluating interest rate
risk.
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act requires the federal banking regulators to take "prompt
corrective action" against undercapitalized institutions. The regulators have
established the following capital levels to implement these provisions:
o Well capitalized has total risk-based capital ratio of 10% or
greater, Tier I risk-based capital ratio of 6% or greater, a
leverage ratio of 5% or greater, and is not subject to any
written agreement, order, capital directive, or prompt
corrective action directive.
o Adequately capitalized has total risk-based capital ratio of 8%
or greater, Tier I risk-based capital ratio of 4% or greater,
and a leverage ratio of 4% or greater (3% or greater if rated
Composite 1 under the CAMELS rating system)
o Undercapitalized has total risk-based capital ratio of less than
8%, Tier I risk-based capital ratio of less than 4%, or a
leverage ratio of less than 4% (3% if rated Composite 1 under
the CAMELS rating system).
o Significantly undercapitalized has a total risk-based capital
ratio of less than 6%, Tier I risk-based capital ratio of less
than 3%, or a leverage capital ratio of less than 3%.
o Critically undercapitalized has a ratio of tangible equity to
total assets that is equal to less than 2%.
Federal regulators are required to take prompt corrective action to
solve the problems of those institutions that fail to satisfy their minimum
capital requirements. As an institution's capital level falls, the level of
restrictions becomes increasingly severe and the institution is allowed less
flexibility in its activities.
Page 8
As of December 31, 1999, the Bank was a well capitalized institution
under the definitions.
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), as implemented by FDIC regulations, a bank has an obligation,
consistent with safe and sound operation, to help meet the credit needs of its
entire community, including low and moderate income neighborhoods. The CRA does
not establish specific lending requirements or programs, nor does it limit a
bank's discretion to develop the types of products and services that it believes
are best suited to its community. It does require that federal banking
regulators, when examining an institution, assess the institution's record of
meeting the credit needs of its community and to take such record into account
in evaluating certain applications. As a state chartered bank, the Bank is
subject to the fair lending requirements and reporting obligations involving
home mortgage lending operations of the CRA. Federal regulators are required to
provide a written examination of an institution's CRA performance using a
four-tiered descriptive rating system. These ratings are available to the
public. Based upon examinations by the OTS in 1996 and 1998, the Bank's federal
regulator at the time of examination, the Bank's CRA ratings were "Outstanding."
Recent Legislative Developments
On November 12, 1999, the President signed the Gramm-Leach-Bliley
Financial Modernization Act of 1999 into law. The Modernization Act will, among
other things, allow bank holding companies meeting management, capital and CRA
standards to engage in a substantially broader range of nonbanking activities
than currently is permissible, including insurance underwriting and making
merchant banking investments in commercial and financial companies; allow
insurers and other financial services companies to acquire banks; remove various
restrictions that currently apply to bank holding company ownership of
securities firms and mutual fund advisory companies; and establish the overall
regulatory structure applicable to bank holding companies that also engage in
insurance and securities operations. The banking agencies have released for
comment proposed regulations to implement the provisions of the Modernization
Act. In addition, the Federal Reserve Bank has released an interim regulation
permitting the approval of financial holding companies.
The Modernization Act also modifies current law related to financial
privacy and community reinvestment. The new financial privacy provisions will
generally prohibit financial institutions, including the Company, from
disclosing nonpublic personal financial information to third parties unless
customers have the opportunity to "opt out" of the disclosure. At this time the
Company is unable to predict the impact the Modernization Act may have on it and
the Bank. The Modernization Act permits banks, securities firms and insures to
combine and to offer a wide variety of financial products and services. Many of
these resulting companies would be larger and have more resources than the
Company, and should they choose to compete directly with the Company in its
target markets, they could adversely impact the Company's results of operations.
Employees
At December 31, 1999, we had 365 full-time equivalent employees. None
of the employees are covered by a collective bargaining agreement. We consider
our relationship with our employees to be satisfactory.
Page 9
Additional Item. Executive Officers of the Registrant
The following table presents certain information regarding the
executive officers of the Company and the Bank:
- -------------------------------------------------------------------------------------------------------------------
Position with the Company and the Bank and
Name Age Past Five Years Experience
- -------------------------------------------------------------------------------------------------------------------
Thomas S. Wu 41 President and Chief Executive Officer since January 1, 1998.
Previously Executive Vice President and Director of the Bank
since September 1997. Previously was Director of Customer
Care for Pacific Link Communications Limited in Hong Kong.
Served as Senior Vice President, Head of Retail Banking of the
Bank from 1992 to 1996.
- -------------------------------------------------------------------------------------------------------------------
Louis E. Barbarelli 57 Senior Vice President, Chief Information Officer and Director
of Operations
- -------------------------------------------------------------------------------------------------------------------
Jonathan H. Downing 48 Senior Vice President, Chief Financial Officer and Treasurer
- -------------------------------------------------------------------------------------------------------------------
William T. Goldrick 68 Senior Vice President and Chief Credit Officer since January
1997. Previously was Senior Vice President, Senior Credit
Officer for American California Bank from 1995 to 1997; was
Chief Lending Officer of National American Bank from 1992 to
1995.
- -------------------------------------------------------------------------------------------------------------------
Dennis A. Lee 57 Vice President and Corporate Counsel
- -------------------------------------------------------------------------------------------------------------------
Sylvia Loh 44 Senior Vice President and Director of Commercial Banking.
Previously was Vice President, Relationship Manager for Bank
of America until 1996.
- -------------------------------------------------------------------------------------------------------------------
Deanne Miller 51 Senior Vice President and Director of Human Resources
- -------------------------------------------------------------------------------------------------------------------
Item 2. Properties
The Company's principal offices are located at 711 Van Ness Avenue in
San Francisco, California, which serves as the Company's and the Bank's
headquarters. The Bank leases all of its remaining branch facilities under
noncancellable operating leases, many of which contain renewal options and some
of which have escalation clauses.
At December 31, 1999, premises and equipment owned by the Company, both
individually and in aggregate, were not material in relation to the Company's
total assets.
Item 3. Legal Proceedings
Because of the nature of the Company's business, it is subject to
various threatened or filed legal actions. Although the amount of the ultimate
exposure, if any, cannot be determined at this time, the Company, based upon the
advice of counsel, does not expect the final outcome of threatened or filed
suits to have a material adverse effect on its financial position.
Page 10
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders or otherwise
during the fourth quarter of the year ended December 31, 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information on the principal market for and trading price of the
Company's common stock, the number of holders of such stock, and dividend
payments is incorporated by reference from page 37 and from Note 11 on page 56
of the 1999 Annual Report to Shareholders.
Item 6. Selected Financial Data
The information required by this item is incorporated by reference to
page 17 of the Company's 1999 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is incorporated by reference to
pages 18 through 37 of the Company's 1999 Annual Report to Shareholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference to
pages 35 to 36 of the Company's 1999 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated by reference to pages
38 through 67 of the Company's 1999 Annual Report to Shareholders. See Item 14
of this report for information concerning financial statements and schedules
filed with this report.
Item 9. Changes in and Disagreements with Independent Accountants on Accounting
and Financial Disclosure
Not applicable.
Page 11
PART III
Item 10. Directors and Executive Officers of the Registrant
The information relating to directors required by this item is
incorporated by reference to pages 5 to 8 of the Company's Proxy Statement for
the 2000 Annual Meeting of Shareholders, filed with the Commission on March 13,
2000. Additional information required by Item 10 with respect to executive
officers is set forth in Part I, Additional Item hereof.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to
page 10 and pages 14 to 19 of the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders, filed with the Commission on March 13, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to
pages 3 through 7 of the Company's Proxy Statement for the 2000 Annual Meeting
of Stockholders, filed with the Commission on March 13, 2000.
Item 13. Certain Relationships and Related Transactions
None.
Page 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
(1) The report of independent accountants and the following
consolidated financial statements of the Company are incorporated
herein by reference to the 1999 Annual Report to Shareholders.
Page number references are to the 1999 Annual Report to
Shareholders.
Page of Annual Report
---------------------
UCBH Holdings, Inc.
Report of Independent Accountants................................................................38
Consolidated Balance Sheets at December 31, 1999 and 1998........................................39
Consolidated Statements of Income for the
Years Ended December 31, 1999, 1998 and 1997..................................................40
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997..................................................41
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997..................................................42 to 43
Notes to Consolidated Financial Statements.......................................................44 to 66
Unaudited Supplemental Information...............................................................67
(2) All schedules are omitted because they are not required or applicable, or the required
information is shown in the Consolidated Financial Statements, or the notes thereto.
(3)(a) Exhibits:
The exhibits filed as a part of this Form 10-K are as follows (filed
herewith unless otherwise noted):
3.1 Amended and Restated Certificate of Incorporation of
UCBH Holdings, Inc.*
3.2 Bylaws of UCBH Holdings, Inc.*
4.0 Form of Stock Certificate of UCBH Holdings, Inc.*
4.1 Indenture of UCBH Holdings, Inc., dated April 17, 1998, relating to Series B
Junior Subordinated Debentures**
4.2 Form of Certificate of Series B Junior Subordinated
Debenture**
4.3 Certificate of Trust of UCBH Trust Co.**
4.4 Amended and Restated Declaration of Trust of UCBH Trust Co.**
4.5 Form of Series B Capital Security Certificate for UCBH Trust Co.**
4.6 Form of Series B Guarantee of the Company relating to the Series B Capital Securities**
10.1 Employment Agreement between United Commercial Bank and Thomas S. Wu*
10.2 Employment Agreement between UCBH Holdings, Inc. and Thomas S. Wu*
10.3 Form of Termination and Change in Control Agreement between United Commercial Bank and
certain executive officers*
10.4 Form of Termination and Change in Control Agreement between UCBH Holdings, Inc. and certain
executive officers*
10.5 UCBH Holdings, Inc. 1998 Stock Option Plan***
13.0 Amended 1999 Annual Report to Shareholders
21.0 Subsidiaries of UCBH Holdings, Inc. (see Item 1 - Business)
23.1 Consent of PricewaterhouseCoopers LLP
27.0 Financial Data Schedule
- --------
* Incorporated herein by reference to the Exhibit of the same number in
the Company's Registration Statement on Form S-1 filed with the
Commission on July 1, 1998 (SEC File No. 333-58325).
** Incorporated herein by reference to the Exhibit of the same number in
the Company's Registration Statement on Form S-4 filed with the
Commission on July 1, 1998 (SEC File No. 333-58335).
*** Incorporated herein by reference to the Exhibit of the same number in
the Company's Form 10-Q for the quarter ended June 30, 1999 filed with
the Commission on August 6, 1999 (SEC File No. 0-24947).
(b) Reports on Form 8-K
None.
Page 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 10, 2000 UCBH HOLDINGS, INC.
By: /s/ Jonathan H. Downing
------------------------------------
Jonathan H. Downing
Senior Vice President, Chief Financial Officer,
Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
Name Date
- ---- ----
/s/ Thomas S. Wu President, Chief Executive Officer March 10, 2000
- --------------------------------------- and Director
Thomas S. Wu (principal executive officer)
/s/ Jonathan H. Downing Senior Vice President, Chief March 10, 2000
- --------------------------------------- Financial Officer, Treasurer
Jonathan H. Downing and Director
(principal financial officer)
/s/ Sandra Go Vice President March 10, 2000
- --------------------------------------- and Financial Controller
Sandra Go (principal accounting officer)
/s/ Sau-wing Lam Chairman of the Board of Directors March 10, 2000
- ---------------------------------------
Sau-wing Lam
/s/ Li-Lin Ko Director March 10, 2000
- ---------------------------------------
Li-Lin Ko
/s/ Ronald S. McMeekin Director March 10, 2000
- ---------------------------------------
Ronald S. McMeekin
/s/ Dr. Godwin Wong Director March 10, 2000
- ---------------------------------------
Dr. Godwin Wong
Page 14